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Maximizing Outsourcing Value
through
Automated People Analytics @ Work
A White Paper
By
Shirish Deodhar and Khiv Singh
February 2016
White Paper Outsourcing Governance
© Sapience Analytics Page 2 of 15
Contents
Contents
Abstract ........................................................................................................................................ 3
1. Introduction ......................................................................................................................... 3
2. Key Challenges in Outsourcing ..................................................................................... 5
3. Creating a Better Outsourcing Governance Model ............................................... 6
4. Co-management and Technology can help resolve the challenges .............. 7
5. People Analytics @ Work - about Sapience ............................................................ 14
6. Recommendations .......................................................................................................... 15
White Paper Outsourcing Governance
© Sapience Analytics Page 3 of 15
Abstract
The highlights of this white paper are as follows:
Identifies the typical problems in managing outsourcing relationships
Introduces the concept of Co-management of outsourcing relationships
for better alignment and success
Describes a technology solution that provides automated and accurate
visibility into the outsourcing engagement thereby driving data-driven
decision making and a more trusted relationship
Highlights how Co-management and technology can deliver a 20% and
higher value creation or 20+% reduction in outsourcing costs (depending
on your business needs), within a few months.
1. Introduction
Organizations are constantly seeking cost-effective and efficient ways to get
things done, and this is where outsourcing has been playing a key role. In today’s
business environment budgets are under pressure and senior executives are
being given the mandate to do more with less. This has impacted outsourcing,
with organizations demanding more value from their engagements. However,
value-based measures in outsourcing relationships have not been easy to
implement.
Governance is an indispensable part of outsourcing. It involves monitoring and
managing relevant aspects of the outsourcing engagement to obtain the best
possible results. In outsourcing, although the service delivery is transferred to the
Service Providers, the accountability remains with the client organization to
ensure that the risks are managed and there is continued delivery of value from
the Provider.
The client’s Vendor Management Office (VMO) utilizes a mix of tools and
processes to monitor, measure and manage the Providers’ engagement and
delivery. However, existing methods have clearly not been very effective since
most sourcing managers and even Vendors acknowledge challenges with their
outsourcing relationships.
Lack of visibility and predictability is the biggest hurdle when working with
outsourced teams. The typical data that is shared consists of the project plan,
current status, some output metrics, and timesheets. These give an appearance
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of transparency and progress, but rarely help predict the outcome, let alone
helping to drive continuous improvements in value creation. The data tends to
be historical in nature and can’t be influenced. When deadlines are missed and
there is a budget overrun, the client either simply accepts the situation, or the
discussion deteriorates into a blame game.
Most outsourced contracts are Time & Material based and hence more delays
mean the client pays more. Capped T&M, Fixed Cost and SLA based contracts
may reduce the risk, but the client has no way to determine if the same output
could have been achieved at a much lower cost.
Gartner reports that 6% of the Gartner inquiry calls in 2013 and 2014 were related
to outsourcing relationship management, and Customers showed a keen desire
to gain better value from their outsourced teams. As the outsourcing world heads
toward a more complex and hybrid world with multiple Vendors and multiple
engagement models, the requirement for strong relationship management has
increased substantially.
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2. Key Challenges in Outsourcing
In outsourcing, although the service delivery is transferred, it is in the business
interest of the Customer organization to ensure that the risks are managed, and
there is steady delivery of value from the Service Provider. The Vendor
Management Team has this responsibility, and they rely on various tools and
processes to measure and manage the Providers’ engagement and delivery.
However, this is easier said than done, and most Vendor Sourcing managers
state that they face significant challenges with their outsourcing deals
throughout the life of the contract. They include delays in transition and starting
of service by the Vendor, inefficient governance processes, and service levels
being met on paper but Customer satisfaction being low.
The top 5 challenges in managing outsourcing engagements are:
i. Lack of visibility into operations - not having real insight into the operations
of the Service Provider is the biggest reason why Vendor Managers cannot
predict the outcome of the engagement, be it financial or delivery.
ii. Lack of Alignment – often the Customer and Provider have different
expectations regarding the deal outcomes. This could mean that the
Provider team’s activities may not be prioritized to the Customer’s needs.
Customers may face internal resistance to outsourcing, causing delays and
insufficient information being made available to the Service Provider.
iii. Absence of Standard Benchmarks – it is difficult to arrive at a way to
uniformly benchmark and compare different teams, projects and Vendors,
which hampers the ability to negotiate and drive change.
iv. Understaffed Vendor Management teams – there is an over-reliance on
manual and inefficient governance processes, resulting in high workload
on the Vendor Management team to ensure that the data is reliable and
to extract meaningful and actionable insights.
v. Lack of Accountability in Contracts - lack of scientific and automated ways
of creating service levels or metrics makes it difficult to have precise goals.
In multiyear deals, price is no longer cost competitive in following years if
there is no objective way to demand improved service levels.
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3. Creating a Better Outsourcing Governance Model
Most of the challenges in outsourcing governance stem from the lack of accurate
and objective data, starting with a baseline in the initial period of engagement
and improvements based on reviews as the relationship progresses. Not having
the data to set precise SLAs, Metrics and Goals leaves the governance program
with no leverage to positively impact the engagement and drive business value
for both parties.
Traditionally the Vendor Managers and governance program are introduced
after the deal has been finalized. The Vendor Managers are always struggling to
get the right information. They may get a lot of data (project plan, status update,
timesheets etc.) on a regular basis, but they rarely predict the outcome
accurately. It is typical for projects to be in green state until the last stretch, and
suddenly the end dates are pushed out. The Customer has little option other than
complain and keep pushing the team to try and meet the new dates.
We introduce the concept of Co-management of outsourcing engagements to
transform how Customers and Service Providers work together. Co-management
establishes a partnership relationship with Vendors that relies on complete
transparency at operational and strategic level between both sides. This has to
be supported by the right technical solutions which provide highly automated
and accurate visibility into the Vendor team’s performance. The most successful
outsourcing relationships rely on Co-management and not an arm’s length
engagement.
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4. Co-management and Technology can help resolve the
challenges
Let’s now look at the each of the challenges listed earlier and discuss how those
can be solved through co-managment to build a better governance model.
4.1 Lack of visibility into operations - Vendors usually lack a robust
governance plan and most of the information they collect is used
internally and not shared with their Customers. At best they share the
project plan, current status, some output metrics, and timesheets. These
give an appearance of progress, but rarely become the source for driving
continuous improvements in value creation and for ensuring alignment
with the real business goals. The data also tends to be historical in nature
and can’t be influenced.
Vendor managers need tools and technology that will give them access
to real-time data that can be used to co-manage the team. Imagine a
scenario where Vendor managers have access to the following data in
real-time.
a) Time at work: you might be getting timesheets that Vendor teams work
for 8 hours, but do you know the division of this work by purpose (project
work, non-project work, time on PC, time in meetings)? We usually find
that our Customers are
getting around 35%
less productive work
time than expected.
Low work time can
reflect underlying
issues relating to
manager oversight,
team morale,
requirements not understood, customer not providing information in a
timely manner, and so on. It represents a huge opportunity for
transformation and driving more value from the engagement.
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b) Time on core activities: the output of the team depends on the time
they can spend on core activities i.e. activities that are directly related
to their job
functions. In
today’s work
environment, a lot
of time gets
wasted on useful
but non-core (e.g.
emails and
meetings) and
unproductive
work activities. Changing this mix to get 10-15% more time on core
activities in the same work time has a direct impact on their output.
c) Work activity aligned with project plan: for each project, the team
prepared a project plan but do you have visibility on whether the work
in progress is
consistent with the
requirement in that
phase of the
project? This real-
time visibility can
assure you that the
effort is aligned (or
not!) with the
project plan. We
have seen
instances where the Customer is informed that the team is in final QA
and release phase, and yet a significant amount of development work
is still in progress.
d) Compare Effort and Output: comparing Effort and Output together
provides a powerful 3600 view
into individual or team
performance. It can highlight the
extent to which Output can
improve based on the gap
between Expected and Actual
Effort. One challenge is that
Output is not always quantifiable,
but whenever it is (like managed services and QA teams), it can
become a powerful and holistic method to measure and improve
productivity.
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The data and analytics described above has to be automated and
accurate. Subjective inputs by users won’t do. It brings objectivity to
review sessions, and ensures that both sides focus on improvements
necessary rather than play the blame game.
4.2 Lack of alignment – Not having strong SLA and Metrics that act as
the common ground on which the entire engagement functions, hinders
the ability of Vendor managers to ensure that Service Providers’ efforts
and output are aligned with the business objectives of the Customer.
Access to real-time data, of the kind shown above, will help validate that
the Vendor teams’ effort is aligned at all times. The data can be used to
define SLAs and pay-for-performance models that will benefit both sides.
The Provider can now drive efficiencies while meeting Customer goals.
The Customer pays based on results. If there is a gap, the real-time data
provides advance notice and enables both sides to proactively resolve
any issues.
At times the internal pushback from the team is not visible to the Vendor
managers, they only come to know of it when the deadlines are missed
by the Vendors and there is a final escalation. However, this is too late
and precious time and money has already been lost. The starting phase
is critical, and Customer teams must ensure proper knowledge transfer,
documentation, training and other inputs. If the vendor teams are idling
in the initial stages, the Vendor managers can push their side that the
activities that were supposed at happening at their end do happen on
time. A weekly review of work activities by project phase provides the
data Vendor managers need to ensure that their own teams are fulfilling
their responsibilities.
Mentioned below are some examples of SLAs:
a) Work time - set an expectation for the work time. Track the Daily
Average at team level on monthly or quarterly basis. It should be within
a +- 10% band of (say) 8 hours of work time.
b) Time on Core Work - out of the average 8 hours of work, for example 6
hours have to be spent on core activities.
c) Effort alignment with project plan – this is very dependent on the nature
of work. In Managed Services, where the work is steady and may not
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go through various phases, this may not be relevant. For application
engineering teams, goals can be set based on different phases of the
project (waterfall model) or sprints (agile teams).
d) Output and Effort correlation – where Output metrics are available,
correlation with Effort can help determine how Output is impacted
based on the underlying Effort, including total work hours, time spent
on core activities, and activity patterns in various phases of the project.
4.3 Absence of Standard Benchmarks – projects and work assigned to
different teams and vendors may vary widely. It is hard to come up with
a common benchmark to compare between multiple teams, projects
and Vendors. This hampers the ability to negotiate and drive change.
One benchmark that can be used is the average per person work effort.
Irrespective of the location, technology and nature of work, it is to be
expected that teams are sufficiently engaged on productive work at all
times. The ability to compare based on productive work effort provides
the much-needed insights into which are the most productive teams,
locations, and work streams. Armed with this knowledge you can decide
the areas where additional work is possible or headcount increase is
justified.
a) Team Analytics: It becomes possible to analyze your outsourced team
workload in any dimension such as the difference between Top 20% and
others (as shown), across roles, skills, locations and so on. It is typical to
discover that 20-30% of
the team is fully
engaged, while the rest
of the team is not as
busy. This is mostly due
to poor delegation,
and eventually impacts
the team through
higher attrition due to
high stress (amongst
the busy 20%) and not
enough opportunities
(from those less busy). Another example is the discovery that QA
engineers are typically underutilized. They are busy during the pre-
release phase, but don’t have much work at other times. Once the data
is visible, the actions to be taken are obvious. Ensure that workload is
distributed more evenly, have people volunteer to pick up the work
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backlog, and have the QA team work on test plans, writing new test
cases, and implement test automation where feasible.
b) Vendor Comparison: There is an increasing trend of periodic Vendor
review with the objective of
reducing the vendor count
or replacing under-
performing ones. One
uniform yardstick is the level
of their team’s total work
time and % time on core
activities. An engaged and
focused team usually means
a highly motivated team,
and good management
and processes on the customer’s side.
4.4 Understaffed Vendor Management teams – The Vendor
Management function is seen as a cost center within the Customer
organization. Typically the size of the team depends on the number of
Vendors and the outsourcing volume. Due to an over-reliance on manual
and inefficient governance processes, Vendor Management teams tend
to be very busy.
The majority of the work is to ensure that the Vendor supplied data is
reliable, process it and get a sense of what is really going on with the
outsourced team. Lack of the right tools and governance process at the
Vendor organization means data is coming in multiple formats from
disparate sources that has to be combined and analyzed. This takes a lot
of effort, represents past performance and hence can rarely influence the
immediate outcome. At best it provides some learning for future work, but
that too is often not the case since the nature of work and Vendor
employees keep changing too.
A tool that can provide automated and objective data in a dashboard
for easy consumption and review will reduce the load for Vendor
managers significantly. Integrating it with billing and project
management tools will have an even bigger impact. The Vendor
managers can now focus on performance reviews, identifying problem
areas, and taking corrective steps in a proactive manner.
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4.5 Lack of accountability in contracts – though Customers want
accountability, it is often difficult to set precise numerical goals. This is
often the result of not having any means to create accurate baseline
data based on which future goals can be set. In certain relationships like
managed services with quantifiable deliverables such as tickets resolved
(or a similar equivalent), the SLAs can be around total volume of tickets
and quality of resolution (turnaround time, end user satisfaction). In others,
like for application engineering, such metrics are a challenge. Schedule
variance and quality of the deliverables are often used in such cases.
Yet, when the Customer complains that SLAs are not met or delivery dates
slip or the quality was not as desired, this is inevitably disputed by the
Provider with all kinds of explanations. It is difficult to arrive at a firm
conclusion, and hence typically both sides simply commit to do better
next time. And so this goes on, with the Customer either making do with
the value delivered by the Provider and not knowing whether it can be
better, or deciding at some point that they are better off with some other
Vendor.
This status quo can only be broken when the Customer has access to
automated tools that provide accurate facts about the Provider team’s
effort and output (where practical). Then if the effort is inadequate, it can
be corrected. If the output does not improve despite reasonable effort,
the Customer has the choice to switch to another Vendor. The new
Vendor will have clear objectives from day 1.
Many contracts are multiyear deals, with a commitment for year to year
value improvements and/or cost reduction. The availability of automated
operational data makes it possible to structure commitments and pricing
to steady and measurable improvements over the baseline performance
measured in the first few months of the relationship.
In today’s scenario of multiple Vendors, a head to head comparison
allows consolidation to the top 2-3 Vendors. This ensures that you get the
highest business value and lower governance overhead with fewer
Vendors to manage.
A Co-management based approach between the Customer and Service
Providers will ensure that the above recommendations are viewed in the right
spirit and implemented effectively by both sides. With Co-management, both
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sides are committed to delivering higher business value from the outsourced
engagement irrespective of the business model. For example, a Provider may fear
reduction of headcount if the team’s productivity were to increase. However, in
a partnership, the Provider is assured of potentially additional business if they
deliver higher value. If nothing else, a satisfied Customer will mean a continuing
long term relationship, something to be valued in the current scenario of multiple
Vendors and Vendor churn. In SLA and outcome based pricing, the Provider will
improve profitability as team productivity improves. Customers will see better on-
time delivery and higher quality thereby reducing their risk. In the best case
scenario, the outsourced team may deliver high impact innovation, for which the
Provider can be appropriately rewarded.
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5. People Analytics @ Work - about Sapience
Time on Work contributed by the Provider’s employees is a key asset that
influences outcome. Manual timesheets and allocated headcount are not
accurate indicators of what is happening at outsourced teams. Sapience is a
unique People Analytics @ Work solution which really moves the needle on
outsourced team productivity. It provides Automated Visibility of effort and output
at team level. Customer and Provider Managers get never-before exact insights
about how busy teams really are, enabling data driven workload assignment and
resource allocation. Employees too get a self-improvement tool that guides them
to achieve more at work with less stress through mindful effort.
Key benefits from an outsourcing perspective include:
1. Transparency: Sapience delivers the facts about Provider’s team effort
(work time and breakup across activities) and output (transactions, tasks)
trends on daily, weekly, monthly basis. This is automated and does not
require any user inputs. Correlating Effort with Output results in never before
3600 visibility into productivity. Sapience insights enable both sides to discuss
how to fine-tune priorities so that the team will deliver on time, rather than
perform a post-facto analysis of what went wrong.
2. Dynamic Staffing reduces cost by 20+%: In T&M projects, the Provider is
motivated to keep asking for more headcount since this adds to their
revenue. When project deadlines slip, the first reason cited is of insufficient
people. Headcount reduction happens only when the Client is scaling
down the outsourced team for cost reasons, and never because the
Vendor says that they don’t need as many people for the assigned
workload. With Sapience, decisions about adding or reducing headcount,
backfilling attrition or not, moving resources to other teams, all become
very objective. Staffing is tuned to current workload, reducing the cost of
outsourcing typically by over 20%. In non T&M projects, on the other hand,
optimizing resource allocation will significantly improve profitability for the
Provider.
3. Retain your top Vendors and Business Models: Most large Customers have
multiple Service Providers. There is an increasing trend to consolidate and
retain only the best ones. Sapience enables you to compare Vendor
performance head to head. Both Customers and Providers benefit from a
predictable cost model and measurable performance benchmarks. With
Sapience, you can first baseline current performance, and set goals and
payment terms that make the business model increasingly tied to results
and fair to both sides in a very transparent manner.
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6. Recommendations
In summary, the top 5 recommendations for a successful outsourcing
engagement are:
A. Define the governance process before signing the contract, including the
various level of key activities and points of contact both sides at each level.
Ideally, there could be three levels of governance:
i. Operational - to monitor daily/ongoing progress and ensure service
continuity
ii. Tactical – for regular reviews of operational metrics and service
delivery aspects including escalation handling
iii. Strategic – to ensure alignment of high level objectives and
measurement of business value delivered
B. Data has to be the bedrock of the governance. Choose the right
technology that can measure performance in automated manner, and
require all Vendors to use these tools. If possible, plan a 90-120 day pilot to
obtain baseline SLAs and metrics.
C. Get creative with the contract, with pay for performance clauses. Include
both penalties and rewards linked to objective data that is always
available to both parties.
D. Create competition. Run joint governance for multiple Vendors together,
share and review everybody’s data. This will create competition amongst
the Vendors to score over others which will ultimately benefit you.
E. Encourage Vendors to implement processes, tools, and frameworks to
improve Teamwork, Employee Engagement, and Motivation. A high caliber
team is as much in your interest as the Provider.
Note: For more details, case studies, and information about the People Analytics
@ Work solution, please contact [email protected].